Outline

• ECO-MRIO-SFC modeling as a tool to understand the very complex impact of (carbon) taxes and tariffs on global value chains from a socio-economic perspective: ecological, macroeconomic and distributional implications for class, gender, race / region
• Trade wars and global value chain fragmentation/regionalization
• Challenge how to overcome ecological unequal exchange
• Current model shows ecological and economic impacts are best in cooperative models
• Implications: competition vs cooperation in trade (Blecker 2025)

Outline

• Make explicit the military sector (military Keynesianism) and migration as a dynamic feedback
• Green value chain upgrading from the NZIPL green tech dataset
• NZIPL net-zero value chain explorer

Motivation: Exchange is Unequal

Starting Point: the JUST2CE project

• JUST2CE = A Just Transition to the Circular Economy
  
• EU-funded project proposing an alternative way of looking at CE
  
• Most projects have focused on how to produce circularity. JUST2CE focuses on what (democracy, participation, gender, global justice)
  
• Two milestones / WP5 deliverables:
  • Systematic review of macro models assessing CE transition (Fevereiro et al 2025)
  • Formal model(s) to simulate & compare CE policies and transition scenarios (Vallès Codina et al., 2026?)

Systematic Literature Review

Systematic Literature Review (Simplified)

Citation Network of Ecological Macroeconomics

Main Gaps Identified

• Modelling of Rebound Effects — limited treatment of demand/impact changes via prices, jobs, income
  
• Transitional Dynamics — IO analysis typically static
  
• Limited Socio-Economic Coverage — often only employment considered
  
• Technology Innovation & Diffusion; Demand Assumptions — low-labor-cost tech may be preferred
  
• North–South / Core–Periphery Ecological Unequal Exchange (Dorninger 2021, Hickel)

The Model: Basic Features

Main tools in (theory-to-data) macroeconomics:

1. DSGE (and growth) models — Pros: mainstream, simple story. Cons: “small”, unique optimal equilibrium
   
2. CGE models (and IAMs) — Pros: many variables, cross-industry links. Cons: unique optimal equilibrium, no finance

Cross-breeding two alternatives (Hardt & O’Neill 2017):

• Leontief IO Models — Pros: many variables, cross-industry links. Cons: static, no finance
  
• SFC Models — Pros: dynamics, finance. Cons: homogeneous output

Theoretical Antedecents

• Increasing use of IO–SFC models; yet none focuses on CE:
  
• Berg, Hartley & Richters (2015). A stock-flow consistent input-output model with applications to energy price shocks, interest rates, and heat emissions.
• Other contributions Naqvi (2015); Naqvi and Stockhammer (2018); Valdecantos & Valentini (2017); Nieto et al (2019); Jackson & Jackson (2021); Cordier et al. (2015); Jackson et al. (2014)
• MEDEAS, Eurogreen, REAL, ToBe… increasingly very sophisticated one-region models

ECO–MRIO–SFC Model

1. Two-country macro frame from standard SFC models (Godley & Lavoie 2007):
   

• Six sectors: households, production firms, government, commercial banks, central bank
  
• Four assets: cash, bank deposits, shares, government bills (+ advances)
  
• Only loans to firms (no personal loans)
  
• Fixed capital, no inventories

2. Flexible IO structure: currently 50+ industries
3. Identification: calibration to target final demand components
   
4. Solution: numerical simulations (R), 100 periods, 100 iterations

Final Demand and Gross Output: Constant Sector Shares

Let us consider a \(3\times 3\) production. The final demand vector is:

\[ \mathbf{d} = \begin{bmatrix} \beta_1 \\ \beta_2 \\ \beta_3 \end{bmatrix} c + \begin{bmatrix} \iota_1 \\ \iota_2 \\ \iota_3 \end{bmatrix} i_d + \begin{bmatrix} \sigma_1 \\ \sigma_2 \\ \sigma_3 \end{bmatrix} gov + \begin{bmatrix} \eta_1 \\ \eta_2 \\ \eta_3 \end{bmatrix} exp \]

The gross output vector is:

\[ \mathbf{x} = \mathbf{A} \mathbf{x} + \mathbf{d} = (\mathbf{I}-\mathbf{A})^{-1}\mathbf{d}, \quad \mathbf{A} = \begin{bmatrix} a_{11} & a_{12} & a_{13} \\ a_{21} & a_{22} & a_{23} \\ a_{31} & a_{32} & a_{33} \end{bmatrix} \]

Classical Approach to Prices

For \(i = 1, ..., KN\) commodities where there are \(K\) regions and \(N\) products per region:

\[p = w l + p A (1 + \mu_i) (1 + \kappa_i \delta_i)\]

Isolating prices, \[ p = w l [I - (1 + \mu) (1 + \kappa \delta) A]^{-1} = w l B = w v \]

where \(v \equiv l B\) and the augmented Leontief matrix is

\[B \equiv [I - (1 + \mu) (1 + \kappa \delta) A]^{-1}\]

under uniform profitability rate \(\mu\) and hence different markups.

Carbon Taxation

Carbon taxes are internalized as a production cost for all commodities:

\[p' = p (1 + \tau)\]

where \(p = w l B\) is the price before tax, \(p'\) is the price with tax, and \(\tau\) is the product of emission intensity times the carbon price. In scalar notation, we write \(p_i = w \sum_j l_j b_{ji}\) so that adding the carbon price yields:

\[p'_i = w (1 + \tau_i) \sum_j l_j b_{ji}\]

(Carbon) Tariffs 1

We need to exploit the \(KN \times KN\) dimensionality of global matrix of input-output coefficients \(A\) and thus the augmented Leontief matrix \(B\). For \(K = N = 2\), 2 products and 2 regions, labeled 1 to 4:

\[p = w (l_1, l_2, l_3, l_4) \begin{pmatrix} b_{11} & b_{12} & b_{13} & b_{14} \\ b_{21} & b_{22} & b_{23} & b_{24} \\ b_{31} & b_{32} & b_{33} & b_{34} \\ b_{41} & b_{42} & b_{43} & b_{44} \end{pmatrix}\]

(Carbon) Tariffs 2

In the carbon taxation case, we defined \(1 + \tau\) as a \(KN\)-vector, but it can also be thought of a diagonal matrix with zeros in the off-diagonal. For the tariffs case, operate precisely on the off-diagonal matrices that refer to interregional trade. If region 1 imposes a tariff \((\tau_3, \tau_4)\) on products 1 and 2 of region 2, we multiply coefficients \(b_{ij}\) by \((1 + \tau_i)\) for \(i = 3,4\) and \(j = 1,2\):

\[p' = w (l_1, l_2, l_3, l_4) \begin{pmatrix} b_{11} & b_{12} & b_{13} & b_{14} \\ b_{21} & b_{22} & b_{23} & b_{24} \\ b_{31}(1 + \tau_3) & b_{32}(1 + \tau_3) & b_{33} & b_{34} \\ b_{41}(1 + \tau_4) & b_{42}(1 + \tau_4) & b_{43} & b_{44} \end{pmatrix}\]

Ecological Unequal Exchange: EU (red) vs RoW (green)

Modeling Circular Economy Interventions 1: Product Lifetime Extension

Modeling Circular Economy Interventions 2: Resource Efficiency

Balance Sheet

Transaction-Flow Matrix

Multi-Region Input–Output

Calibration

Shocks

Scenario: Reduction in Consumption Level

Scenario: Product Lifetime Extension

Impact: Product Lifetime Extension

Government-led CE Transition

Scenario Summary: Change by Shock, Difference

Scenario Summary: Change by Shock, Percent

Future Work

• Make explicit the military sector (military Keynesianism) and migration as a dynamic feedback
• Green value chain upgrading from the NZIPL green tech dataset
• NZIPL Net-Zero Value Chain Explorer

Sankey Diagram, Solar 2020

Thank you!

oriolvallescodina@gmail.com

ovalles1@jh.edu